What we have to realize is that ‘capital has transitioned to the state’; through the bail-outs and bail-ins, QE’s & SLS’s, LTRO’s & EFSFs; TARPs & twists; capital has transitioned to the state; it has happened, it is ‘what it is’; de-facto (not de-jure); capital has crossed the great libertarian 'blood brain barrier' and it did it @ a ridiculously low price with the greatest irony of all, no central planning!
It's LTRO that I’m talking about this time! LTRO the latest version of “economic life support those” crackpot surgeons in the Central Banks and Treasuries of Europe have come up with. What is the issue with it? As LTRO2 approaches, to on the leap day (29/2/2012) I present a number of theses about LTRO;
1. LTRO is a workaround for Crowding Out
2. LTRO is executed via a process called 'Round Tripping' or known as a ‘Carry Trade’
3. Hedge Funds are intrinsic to the success of LTRO
4. This makes governments dependent upon Hedge Funds (& not just the banks)
5. LTRO creates a cash balloon which props up the equity market
6. LTRO is a high-risk central bank strategy which could deflate at a stroke
7. Ironically the very Hedge Funds and Asset Managers who are intrinsic to the success of LTRO are already freaked out by the high risk nature of the policy,
‘You can check-out any time you like, but you can never leave’
A potential ‘complete’ solution to the crisis is to abolish the euro or kick troubled countries out of the monetary union. While there is a satisfying simplicity to these options, they should only be thought of as last-ditch alternatives. The cost of reinstating a sovereign currency would be horrendous. As Paul Donovan, deputy chief global economist at UBS said on Bloomberg Radio, “the euro is like the Hotel California: once you join you can never leave”.
UBS Investment Research Global Economic Perspectives